NEW YORK, March 3, 2023 (Newswire.com) - OneMain Financial: It's often challenging for Americans to afford healthcare and cover those expenses. But with inflation rising, it's likely more people will go into debt and then rely on a loan payment calculator to determine how much they can borrow. It's a good idea to create a medical expense budget before things get to this point. Below are a few steps to prepare one.
1. Determine how much money is needed
Budgeting requires a person to estimate their income and expenditures for each month. Therefore, the first step in creating a budget should be determining how much money is needed this year for healthcare-related expenses.
This step has three components:
- Healthcare insurance premiums: The cost of health insurance premiums per year
- Out-of-pocket expenses: How much will a person be responsible for paying, i.e., what is the annual insurance deductible, how much is the co-pay, and are there coinsurance costs?
- Unexpected expenses: Because a health insurance provider may not fully cover specific tests, drugs, or doctors, people should build a financial safety buffer into their estimate.
2. Take advantage of tax-saving opportunities
Having calculated an estimate, the next step is to find a tax break. Like retirement savings plans, the Internal Revenue Service (IRS) gives taxpayers the ability to use tax-free money to cover medical expenses if they sign up for one of these accounts:
- HSA (Health Savings Account) - allows people enrolled in a high-deductible health insurance plan to allocate a portion of their income into an account that can be used to pay for IRS-approved medical expenses tax-free. These funds remain with the account owner and never expire.
- FSA (Flexible Spending Account) - allows participants to contribute tax-free to a savings account designed to cover IRS-approved medical expenses. The funds in the FSA must be used within one year, or they will be forfeited.
HSAs are available to people who are either working or not working. On the other hand, FSAs are only offered through an employer.
3. Consider creating a separate account for medical expenses
If the amount someone saves to an HSA or FSA is less than their estimated budget, they should consider setting aside more in a savings account.
While a person can save money for medical expenses in their checking or savings account, it may be better to create a separate account. Doing this will help create both mental and financial partitions for the money. This will make it easier to be used solely for paying medical expenses.
4. How to fund the separate account
With the separate account created, it's best to build up its balance as much as possible. This can be done with the following:
- Setting up automatic contributions from a savings or checking account
- Allocating any extra money from a raise
- Employer bonuses
- Tax refunds
- Additional earnings from side hustles
Whenever possible, go above and beyond and continue saving toward the following year's expenses. Having a financial cushion in place when confronted with medical bills is important.
The Bottom Line
Medical expenses often cost a lot of money, but consumers can better manage the expenses by adopting a sound financial strategy. Estimating how much is needed and signing up for an HSA or FSA is a great place to start. From there, creating a separate savings account and funding it will also help them on the way to better financial security.
Public Relations Specialist
Original Source: OneMain Financial: How to Create a Budget to Pay Medical Bills